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2016 (7) TMI 211 - GUJARAT HIGH COURT

2016 (7) TMI 211 - GUJARAT HIGH COURT - TMI - Revision u/s 263 on ‘Protective basis’ - Maximum marginal rate u/s 164 - whether the income did not ‘accrue’ or ‘arise’ to the specific beneficiary (the assessee) ? - whether CIT had no jurisdiction u/s 263 of the Act for direction for invoking the provisions of section 164(1) of the Act and also giving further finding that the statement in writing submitted under Explanation 1 to section 160(1) signed by one of the Trustees was not valid and hence t .....

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eneficiary, Assessing Officer can assess income of First Level Trust at maximum marginal rate as per section 164 to extent of respective share of such beneficiary trust (discretionary trust) and at normal rate as per section 161 to extent of share of individual beneficiaries. It is further held by this court that however if Second Level Trust which is a beneficiary of First Level Trust is found to be specific, then assessment of First Level Trust should rest there and assessment of First Level T .....

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beneficiaries’ beneficiary. Also see KV. Patel Family Trust Versus CIT [2014 (8) TMI 601 - GUJARAT HIGH COURT] - In view of the aforesaid legal position, we answer the reference in favour of assessee - INCOME TAX REFERENCE NO. 27 of 2003 - Dated:- 21-6-2016 - MR. KS JHAVERI AND MR. G.R.UDHWANI, JJ. FOR THE APPLICANT : MRS SWATI SOPARKAR, ADVOCATE FOR THE RESPONDENT : MR NITIN K MEHTA, ADVOCATE ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. The following question has been referred .....

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not accrue or arise to the specific beneficiary (the assessee) in the relevant year and was further justified in concluding that the assessee could not be regarded as beneficiary in the year under review liable to be taxed at maximum marginal rate of tax under section 164(1) of the Act? 1.1 For assessment years 1981-82 and 1982-83 the following questions in addition to the above two question are also referred : Whether the Tribunal was justified in not dealing with or holding that the CIT had n .....

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ain Trust in short) for assessment years 1980-81 to 1982- 83. This beneficiary is oral Specific Deferred Family Trust ( Deferred Trust in short). The Main Trust was created by one Shri Kanjibhai K. Patel by settling ₹ 1000/- on 28th March 1979. The beneficiaries of the Main Trust were listed in Schedule I and Schedule II of the Trust Deed of the Main Trust. As per Schedule I, there are 17 individual beneficiaries with specific share ratio and Schedule II gives the list of 17 Oral Specific .....

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io indicated therein. However, the said share of income was not to be paid to the individual beneficiary of the Deferrred Trust bu the same was to be accumulated for a period of 19 years from the date of the trust deed. 2.1 The Main Trust became partner in the firm M/s. Nirma Chemical Works through its trustee Smt. Shantaben Kacharabhai Patel with 15% share. The firm was dissolved on 7th Feb 1980 and the running business of the erstwhile firm was taken over by the Main Trust. The Main Trust subm .....

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individual beneficiaries mentioned in Schedule I and trustees of the 17 Deferred Trust mentioned in Schedule II in their respective capacity u/s 161 of the I.T. Act. The ITO did not invoke the provisions of Section 164 or 164A and did not charge tax at maximum marginal rate. 2.2 The CIT(A) exercised revisional powers u/s 263 of the I.T Act in the case of the Main Trust holding that the Assessing Officer has erred in law and acted to the prejudice of the revenue in directing that 51% of the inco .....

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ent year 1980- 81 to 1982-83 before the Tribunal were decided by the Tribunal wherein the order of CIT(A) in the case of Main Trust was vacated and that of the Assessing Officer were restored for all the years under consideration. Being aggrieved by the said order, the Trust preferred separate appeals for all the three years before the Tribunal. For the reasons stated in the common order passed on 29.05.1995 the Tribunal confirmed the findings of the CIT(A) and so far as the second and third yea .....

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om 499 (Gujarat) and in the case of Neo Trust vs. Income Tax Officer reported in [2015] 54 taxmann.com 1 (Gujarat). 4. Mr. Nitin Mehta, learned advocate for the revenue opposed the reference contending that no question of law arises. He contended that in view of the provisions of Sections 263 and 164 of the Act, the Tribunal was justified in passing the said order. 5. The questions referred to this Court for consideration are now squarely covered by the decisions of this Court rendered in K.V. P .....

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I and Schedule-II are specific shares and therefore, the same can be said to be determinative shares. Merely because 50% of the income and their respective shares were to be accumulated as a special fund in the hands of the trustees for 19 years and the same were to be paid after a period of 19 years, it cannot be said that the Trust is discretionary Trust and/or the Trust is not a specific Trust. In the facts and circumstances of the case and the specific percentage of shares allotted/given to .....

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